Deviation from Covered Interest Rate Parity in Korea

Seungho Lee ()
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Seungho Lee: The Bank of Korea

East Asian Economic Review, 2003, vol. 7, issue 1, 125-141

Abstract: This paper tested the factors which cause deviation from covered interest rate parity (CIRP) in Korea, using regression and VAR models. The empirical evidence indicates that the difference between the swap rate and interest rate differential exists and is greatly affected by variables which represent the currency liquidity situation of foreign exchange banks. In other words, the deviation from CIRP can easily occur due to the lack of foreign exchange liquidity of banks in a thin market, despite few capital constraints, small transaction costs, and trivial default risk in Korea.

Keywords: Covered Interest Rate Parity; Swap Rate; Currency Liquidity (search for similar items in EconPapers)
JEL-codes: C15 C32 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0220

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